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Forest Oil Announces Third Quarter 2010 Results; Sequential Organic Net Sales Volumes Growth; Increases 2010 Net Sales Volumes Guidance; Expansion of Texas Panhandle Program
Third Quarter 2010 Net Sales Volumes of 457 MMcfe/d Exceeded Guidance and Provided Sequential Organic Growth
Increased Fourth Quarter 2010 Net Sales Volumes Guidance Range to 470 - 480 MMcfe/d and 2010 Net Sales Volumes Guidance Range to 450 - 455 MMcfe/d
Liquids Account for 26% of Net Sales Volumes in Third Quarter 2010; Up from 22% in First Quarter 2010 and Expected to Increase to 28% in Fourth Quarter 2010
Seven Granite Wash Wells Drilled in Third Quarter 2010 Average 24-hour Initial Production Rate of 27 MMcfe/d
Sequential Reduction of Net Debt by 3% to $1.6 Billion

DENVER, Nov 01, 2010 (BUSINESS WIRE) --

Forest Oil Corporation (NYSE:FST) (Forest or the Company) today announced financial and operational results for the third quarter of 2010.

The Company reported the following highlights:

  • Net sales volumes of 457 MMcfe/d organically increased 16% from the corresponding 2009 period, pro forma for asset divestitures
  • Net sales volumes guidance range increased to 470 - 480 MMcfe/d and 450 - 455 MMcfe/d for the fourth quarter 2010 and full year 2010, respectively
  • Net sales volumes attributable to liquids increased from 22% in first quarter 2010 to 26% in third quarter 2010 and is expected to increase to approximately 28% in fourth quarter 2010
  • Net debt decreased 3% sequentially to $1.6 billion at September 30, 2010

H. Craig Clark, President and CEO, stated, "The Texas Panhandle continues to outperform our expectations. Our extensive wellbore database has provided information that enables us to expand the play both geographically and throughout multiple zones. During the quarter, our first operated well in the Canadian Southeast field was completed at an average 24-hour initial production rate of 16 MMcfe/d with a 40% liquids cut. This well, and six others which were drilled in multiple zones during the quarter, expanded our successful results achieved in the play, yielding an average 24-hour initial production rate of 27 MMcfe/d. As a direct result, Forest's updated net sales volumes guidance for the fourth quarter of 2010 represents organic growth of 20% from the fourth quarter of 2009. Our forecasted liquids production in the fourth quarter of 2010 has also increased to 28% of total production from 22% in the first quarter of 2010. The ability to grow organically at double digit rates, driven by liquids production, while keeping net debt flat, demonstrates the quality of our asset base and the capital efficiency of our drilling program."

THIRD QUARTER 2010 RESULTS

For the three months ended September 30, 2010, Forest reported net earnings of $68.9 million or $0.60 per diluted share. This compares to Forest's net earnings of $172.3 million or $1.53 per diluted share in the corresponding 2009 period. Net earnings for the three months ended September 30, 2010, were affected by the following items:

  • The non-cash effect of net unrealized gains on derivative instruments totaling $29.1 million ($18.6 million net of tax)
  • The non-cash effect of unrealized foreign currency exchange gains totaling $9.2 million ($7.8 million net of tax)

Without the effects of these items, Forest's adjusted net earnings for the three months ended September 30, 2010, were $42.5 million or $0.37 per diluted share. This is a decrease of 21% and 23%, respectively, compared to Forest's adjusted net earnings of $53.5 million and $0.48 per diluted share in the corresponding 2009 period. Forest's adjusted EBITDA decreased 9% for the three months ended September 30, 2010, to $176.2 million, compared to $192.7 million in the corresponding 2009 period. Forest's adjusted discretionary cash flow decreased 7% for the three months ended September 30, 2010, to $140.8 million, compared to $151.5 million in the corresponding 2009 period.

The decrease in net earnings, EBITDA, and discretionary cash flow, each as adjusted, was primarily due to lower net realized commodity prices (including net realized derivative gains) for the three months ended September 30, 2010, compared to the corresponding 2009 period.

Net Sales Volumes, Average Realized Prices, and Revenues

Forest's average net sales volumes increased organically 16% for the three months ended September 30, 2010, to 457 MMcfe/d, compared to 396 MMcfe/d in the corresponding 2009 period, pro forma for asset divestitures.

Forest's average oil and natural gas liquids (NGLs) sales volumes increased 18% for the three months ended September 30, 2010, to 26% (19.7 MBbls/d) of total equivalent net sales volumes, compared to 22% (15.6 MBbls/d) for the three months ended March 31, 2010.

Three Months Ended September 30, 2010
Gas Oil NGLs Total
Net sales volumes (MMcf/d) (MBbls/d) (MBbls/d) (MMcfe/d)
United States 279.2 6.5 10.6 381.5
Canada 59.7 2.4 0.3 75.8
Totals 338.9 8.8 10.9 457.2
Average realized prices Gas

($/Mcf)

Oil

($/Bbl)

NGLs

($/Bbl)

Total
($/Mcfe)

United States $ 3.94 73.82 30.54 4.99
Canada 3.53 65.24 56.48 5.05

Average realized prices not including realized
derivative gains and losses

3.87 71.53 31.29 5.00
Realized gains (losses) on NYMEX derivatives 1.12 (0.05 ) - 0.83
Realized losses on basis derivatives (0.25 ) - - (0.18 )
Average realized prices including realized derivative gains and losses $ 4.74 71.48 31.29 5.64
Revenues (in thousands) Gas Oil NGLs Total
United States $ 101,268 44,071 29,652 174,991
Canada 19,396 14,156 1,638 35,190

Revenues not including realized derivative gains
and losses

120,664 58,227 31,290 210,181
Realized gains (losses) on NYMEX derivatives 34,941 (41 ) - 34,900
Realized losses on basis derivatives (7,747 ) - - (7,747 )

Revenues including realized derivative gains and
losses

$ 147,858 58,186 31,290 237,334


Total Cash Costs

Forest's total cash costs decreased 22% for the three months ended September 30, 2010, to $82.9 million, compared to $106.1 million in the corresponding 2009 period. Total cash costs per-unit decreased 19% for the three months ended September 30, 2010, to $1.97 per Mcfe, compared to $2.42 per Mcfe in the corresponding 2009 period. Excluding the effect of a current income tax credit of $17.0 million due to a reduction in our 2009 federal income tax liability recorded in the third quarter of 2010, cash costs decreased 6% for the three months ended September 30, 2010, to $99.9 million, compared to $106.1 million in the corresponding 2009 period.

The following table details the components of total cash costs for the three months ended September 30, 2010, and 2009:

Three Months Ended September 30,
2010 Per Mcfe 2009 Per Mcfe
(In thousands, except per-unit amounts)
Production expense $ 49,763 1.18 51,163 1.17

General and administrative expense (excluding
stock-based compensation of $5,105 and $5,037,
respectively)

12,902 0.31 12,279 0.28
Interest expense 37,088 0.88 42,653 0.97
Current income tax expense (16,814 ) (0.40 ) - -
Total cash costs $ 82,939 1.97 106,095 2.42

_________________________

Total cash costs is a non-GAAP measure calculated in accordance with oil and gas industry standards that is used by management to assess the Company's cash operating performance.Total cash costs is defined as all cash operating costs, including production expense; general and administrative expense (excluding stock-based compensation); interest expense; and current income tax expense.


Depreciation and Depletion Expense

Forest's depreciation and depletion expense per-unit increased 3% for the three months ended September 30, 2010, to $1.54 per Mcfe, compared to $1.49 per Mcfe in the corresponding 2009 period.

Exploration and Development Capital Expenditures

Forest invested $149.0 million in exploration and development activities (excluding capitalized interest, capitalized stock-based compensation, asset retirement obligations incurred, and leasehold acquisitions) for the three months ended September 30, 2010, compared to $72.2 million in the corresponding 2009 period. The increase in exploration and development capital expenditures for the three months ended September 30, 2010, was a result of an increased rig count compared to the corresponding 2009 period.

OPERATIONAL PROJECT UPDATE

Forest expects to run six to eight rigs for the remainder of 2010.

Texas Panhandle - Granite Wash

Forest drilled and completed seven Granite Wash wells in the third quarter of 2010 that had an average 24-hour initial production rate of 27 MMcfe/d.

Operated Wells

Working
Interest (%)

Gross Natural
Gas (MMcf/d)

Gross Oil &
Condensate
(Bbls/d)

Gross Natural
Gas Liquids
(Bbls/d)

Gross
Equivalent
(MMcfe/d)

Prior Average (13 Wells) 77.6 12.1 954 1,791 29
New 3rd Quarter (7 Wells) 89.5 10.4 1,221 1,558 27
Program Average 81.8 11.5 1,047 1,709 28

The results from the seven wells in the third quarter bring Forest's average 24-hour initial production rate from its horizontal Granite Wash program to 28 MMcfe/d. The program continues to expand the play both geographically, further north into Hemphill County, Texas, and geologically, with completions in two Granite Wash zones and one Atoka zone during the quarter.

Forest successfully tested an operated well with a 24-hour initial production rate of 16 MMcfe/d in its Canadian Southeast acreage in Hemphill County. Over 1,000 Bbls/d of this equivalent rate was attributable to condensate and NGLs. In addition, Forest participated with a non-operated working interest in a well in Canadian Southeast that had a 24-hour initial production rate of 15 MMcfe/d, including a sizable liquids component. Each of these wells confirmed the existence of highly productive, liquids-rich pay intervals in Forest's Canadian Southeast acreage. Drilling and completion costs associated with wells in this acreage position are expected to be less than wells in Wheeler County due to shallower depths. These wells are expected to open Forest's Canadian Southeast acreage to expanded exploitation efforts using horizontal drilling.

Forest plans to operate five rigs in the play for the remainder of the year.

Canadian Deep Basin - Nikanassin Resource Play

Forest continued its delineation efforts in the third quarter of 2010 and drilled and completed three wells that had an average 24-hour initial production rate of 9 MMcfe/d. In total, Forest has drilled and completed 15 wells in the play, with an average 24-hour initial production rate of 13 MMcfe/d.

After delineating the Nikanassin Resource Play with vertical wells, the Company expects to spud its first horizontal well in the area in the fourth quarter of 2010. This well is expected to be completed in the first quarter of 2011.

Forest has approximately 25 to 30 MMcfe/d of net production shut-in awaiting completion of infrastructure projects. These projects are expected to be completed and production turned to sales in late November of 2010.

Forest plans to operate two rigs in the play for the remainder of the year.

East Texas, North Louisiana - Haynesville / Bossier Shale

Forest drilled and completed three wells in the third quarter of 2010. In order to optimize recovery from Haynesville / Bossier Shale wells, Forest has adopted a restricted flow rate production program. With this operating strategy, initial production rates from the last three wells were curtailed at 11 to 13 MMcfe/d. Results have shown that cumulative production from the restricted-rate wells has exceeded the cumulative production from comparable unrestricted wells after approximately 90 days. Further, early indications support expectations that estimated ultimate recoveries for restricted-rate wells should exceed recoveries for less restricted wells.

The Company does not plan to operate any rigs in the play for the remainder of the year. All of Forest's leasehold in Red River Parish, Louisiana was converted to held by production status in the third quarter of 2010.

Gonzales, Lee, Wilson, Atascosa, and DeWitt Counties, Texas - Eagle Ford Shale

Forest is currently shooting seismic in Wilson and Gonzales Counties, Texas, and expects to commence drilling with a one rig program in the fourth quarter of 2010 after the results from the seismic shoot are assessed. Additional rigs are expected to be added to the play in 2011.

NATURAL GAS, NATURAL GAS LIQUIDS, AND OIL DERIVATIVES

As of November 1, 2010, Forest had natural gas, natural gas liquids, and oil derivatives in place for the remainder of 2010 and 2011 covering the aggregate average daily volumes and weighted average prices shown below. Since August of 2010, Forest added to its 2011 natural gas hedge program with the addition of 25 Bbtu/d of swaps at an average price of $5.03 per MMbtu. In addition, Forest hedged 3,000 Bbls/d of natural gas liquids at an average price of $36.75 per Bbl for 2011. This fixed price was calculated based on an average natural gas liquids barrel within Forest's portfolio.

None of these derivatives contain knock-out provisions that would cause a derivative to cease to exist at prices below an established threshold. The derivative counterparties consist primarily of commercial banks that are lenders under Forest's credit facilities, or affiliates of such banks.

Oct - Dec
2010

2011
Natural gas swaps:
Contract volumes (Bbtu/d) 210.0 115.0
Weighted average price (per MMBtu) $ 6.20 5.68
Natural gas liquids swaps:
Contract volumes (MBbls/d) - 3.0
Weighted average price (per Bbl) $ - $ 36.75
Oil swaps:
Contract volumes (MBbls/d) 3.0 -
Weighted average price (per Bbl) $ 76.06 -
Oil collars:
Contract volumes (MBbls/d) 2.0 3.0
Weighted average ceiling price (per Bbl) $ 98.50 90.20
Weighted average floor price (per Bbl) $ 60.00 75.00
Summary weighted average oil derivatives:
Contract volumes (MBbls/d) 5.0 3.0
Weighted average ceiling price (per Bbl) $ 85.04 $ 90.20
Weighted average floor price (per Bbl) $ 69.64 $ 75.00


In connection with several natural gas derivatives discussed above, Forest granted option instruments (several commodity swaptions and one call option) to counterparties in exchange for Forest receiving premium hedged prices on natural gas swaps. As of November 1, 2010, none of the options have been exercised by the counterparties. The table below sets forth the outstanding options as of November 1, 2010:

2011 2012
Natural gas swaptions:
Contract volumes (Bbtu/d) 50.0 -
Weighted average price (per MMBtu) $ 5.80 -
Oil swaptions:
Contract volumes (MBbls/d) 1.0 2.0
Weighted average price (per Bbl) $ 85.00 $ 90.00
Oil call options:
Contract volumes (MBbls/d) 1.0 -
Weighted average price (per Bbl) $ 90.00 $ -


UPDATED 2010 GUIDANCE

The detail below represents Forest's updated guidance for oil and gas net sales volumes and depreciation, depletion, and amortization (DD&A) expense for the full year 2010. The updated guidance remains subject to the cautionary statements and limitations contained in our January 7, 2010, press release under the caption "Guidance," as well as those stated below under the caption "Forward-Looking Statements." Except as indicated below, all other guidance detailed in Forest's press releases dated January 7, 2010, May 3, 2010, and August 2, 2010, has not changed.

Oil and Gas Net Sales Volumes: As a result of the strong performance from Forest's drilling program, Forest increased guidance for average net sales volumes to a range of 470 to 480 MMcfe/d for the fourth quarter of 2010 from its previously guided range of 465 to 475 MMcfe/d and to a range of 450 to 455 MMcfe/d for the full year 2010 from its previously guided range of 443 to 453 MMcfe/d. The increase includes the negative effect of net sales volumes associated with divestitures of 16 MMcfe/d in 2010. Organic net sales volumes growth for the fourth quarter of 2010 and for the full year 2010 compared to the corresponding 2009 periods, pro forma for asset divestitures, is expected to be approximately 20% and 5%, respectively. Net sales volumes are expected to be comprised of approximately 27% to 29% liquids (13% crude and condensate and 15% natural gas liquids) in the fourth quarter of 2010, an increase from 22% in the first quarter of 2010. The following is a detail of the anticipated organic growth from 2009 to 2010, excluding net sales volumes attributable to properties divested during 2010:

(MMcfe/d)

Fourth Quarter
Low

Fourth Quarter
High

Annual Low Annual High
2009 net sales volumes 459 459 501 501
Effect of 2009 divestiture activity (47 ) (47 ) (61 ) (61 )
Pro forma 2009 net sales volumes 412 412 440 440
2010 original guided net sales volumes 452 462 439 449
Effect of 2010 divestiture activity (16 ) (16 ) (9 ) (9 )
Increased guided net sales volumes 34 34 20 15
Revised 2010 guided net sales volumes 470 480 450 455
Pro forma organic growth 18 % 21 % 4 % 6 %

Depreciation, Depletion, and Amortization (DD&A) Expense: As a result of higher future development costs, finding and development costs in excess of current DD&A rates, and the foreign currency translation effects from the appreciation of the Canadian dollar, Forest has increased the guided range for the full year 2010 to $1.48 to $1.53 per Mcfe from its previously guided range of $1.40 to $1.50 per Mcfe.

NON-GAAP FINANCIAL MEASURES

Adjusted Net Earnings

In addition to reporting net earnings as defined under generally accepted accounting principles (GAAP), Forest also presents adjusted net earnings, which is a non-GAAP performance measure. Adjusted net earnings consists of net earnings after adjustment for those items described in the table below. Adjusted net earnings does not represent and should not be considered an alternative to GAAP measurements, such as net earnings (its most comparable GAAP financial measure), and Forest's calculations thereof may not be comparable to similarly titled measures reported by other companies. By eliminating the items described below, Forest believes that the measure is useful to investors because similar measures are frequently used by securities analysts, investors, and other interested parties in their evaluation of companies in similar industries. Forest's management does not view adjusted net earnings in isolation and also uses other measurements, such as net earnings and revenues to measure operating performance. The following table provides a reconciliation of net earnings, the most directly comparable GAAP measure, to adjusted net earnings for the periods presented (in thousands):

Three Months Ended
September 30,
2010 2009
Net earnings $ 68,911 172,311

Unrealized (gains) losses on derivative instruments,
net of tax

(18,624 ) 50,550
Unrealized foreign currency exchange gains, net of tax (7,784 ) (8,103 )
Rig stacking, net of tax - 2,571
Change in valuation allowance for deferred tax assets - (163,858 )
Adjusted net earnings 42,503 53,471

Earnings attributable to participating securities and
other adjustments

(806 ) (1,071 )
Adjusted net earnings for diluted earnings per share $ 41,697 52,400
Weighted average number of diluted shares outstanding 111,778 110,222
Adjusted diluted earnings per common share $ 0.37 0.48

Adjusted EBITDA

In addition to reporting net earnings as defined under GAAP, Forest also presents net earnings before interest, income taxes, depreciation, depletion, and amortization (adjusted EBITDA), which is a non-GAAP performance measure. Adjusted EBITDA consists of net earnings after adjustment for those items described in the table below. Adjusted EBITDA does not represent and should not be considered an alternative to GAAP measurements, such as net earnings (its most comparable GAAP financial measure), and Forest's calculations thereof may not be comparable to similarly titled measures reported by other companies. By eliminating the items described below, Forest believes the measure is useful in evaluating its fundamental core operating performance. Forest also believes that adjusted EBITDA is useful to investors because similar measures are frequently used by securities analysts, investors, and other interested parties in their evaluation of companies in similar industries. Forest's management uses adjusted EBITDA to manage its business, including in preparing its annual operating budget and financial projections. Forest's management does not view adjusted EBITDA in isolation and also uses other measurements, such as net earnings and revenues to measure operating performance. The following table provides a reconciliation of net earnings, the most directly comparable GAAP measure, to adjusted EBITDA for the periods presented (in thousands):

Three Months Ended
September 30,
2010 2009
Net earnings $ 68,911 172,311
Income tax expense (benefit) 37,433 (163,851 )
Unrealized (gains) losses on derivative instruments, net (29,091 ) 79,238
Unrealized foreign currency exchange gains (9,244 ) (9,723 )
Interest expense 37,088 42,653
Accretion of asset retirement obligations 1,693 2,014
Depreciation, depletion, and amortization 64,737 65,275
Stock-based compensation 4,658 4,764
Adjusted EBITDA $ 176,185 192,681


Adjusted Discretionary Cash Flow

In addition to reporting net cash provided by operating activities as defined under GAAP, Forest also presents adjusted discretionary cash flow, which is a non-GAAP liquidity measure. Adjusted discretionary cash flow consists of net cash provided by operating activities after adjustment for those items described in the table below. Adjusted discretionary cash flow does not represent and should not be considered an alternative to GAAP measurements, such as net cash provided by operating activities (its most comparable GAAP financial measure), and Forest's calculations thereof may not be comparable to similarly titled measures reported by other companies. Forest's management uses adjusted discretionary cash flow as a measure of liquidity and believes it provides useful information to investors because it assesses cash flow from operations before changes in working capital, which fluctuates due to the timing of collections of receivables and the settlements of liabilities. Forest's management uses adjusted discretionary cash flow to manage its business, including in preparing its annual operating budget and financial projections. This measure does not represent the residual cash flow available for discretionary expenditures. The following table provides a reconciliation of net cash provided by operating activities, the most directly comparable GAAP measure, to adjusted discretionary cash flow for the periods presented (in thousands):

Three Months Ended
September 30,
2010 2009
Net cash provided by operating activities $ 152,348 185,651
Changes in working capital:
Accounts receivable (18,445 ) (4,982 )
Other current assets 12,818 (5,147 )
Accounts payable and accrued liabilities 19,546 (7,909 )
Accrued interest and other current liabilities (8,486 ) (16,091 )
Current income tax credit (16,984 ) -
Adjusted discretionary cash flow $ 140,797 151,522


Net Debt

In addition to reporting total debt as defined under GAAP, Forest also presents net debt, which is a non-GAAP debt measure. Net debt consists of the principal amount of debt adjusted for cash and cash equivalents at the end of the period. Forest's management uses net debt to assess Forest's indebtedness. The following table sets forth the components of net debt for the periods presented (in thousands):

September 30, 2010 June 30, 2010
Principal Book* Principal Book*
8% Senior notes due 2011 $ 285,000 287,626 $ 285,000 288,160
7% Senior subordinated notes due 2013 12 12 12 12
8 1/2% Senior notes due 2014 600,000 580,323 600,000 578,856
7 1/4% Senior notes due 2019 1,000,000 1,000,492 1,000,000 1,000,506
Total debt 1,885,012 1,868,453 1,885,012 1,867,534
Less: cash and cash equivalents 251,599 251,599 200,786 200,786
Net debt $ 1,633,413 1,616,854 $ 1,684,226 1,666,748

_________________________

*Book amounts include the principal amount of debt adjusted for unamortized gains on interest rate swap terminations of $1.0 million and $1.2 million at September 30, 2010, and June 30, 2010, respectively, and unamortized net discounts on the issuance of certain senior notes of $(17.6) million and $(18.7) million at September 30, 2010, and June 30, 2010, respectively.

TELECONFERENCE CALL

A conference call is scheduled for Tuesday, November 2, 2010, at 12:00 PM MT to discuss the release. You may access the call by dialing toll free 800.399.6298 (for U.S./Canada) and 706.634.0924 (for International) and request the Forest Oil teleconference (ID # 17678604). A Q&A period will follow.

A replay will be available from Tuesday, November 2, through November 16, 2010. You may access the replay by dialing toll free 800.642.1687 (for U.S./Canada) and 706.645.9291 (for International), conference ID # 17678604.

FORWARD-LOOKING STATEMENTS

This news release includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements, other than statements of historical facts, that address activities that Forest assumes, plans, expects, believes, projects, estimates or anticipates (and other similar expressions) will, should or may occur in the future are forward-looking statements. The forward-looking statements provided in this press release are based on management's current belief, based on currently available information, as to the outcome and timing of future events. Forest cautions that its future natural gas and liquids production, revenues, cash flows, liquidity, plans for future operations, expenses, outlook for oil and natural gas prices, timing of capital expenditures, and other forward-looking statements are subject to all of the risks and uncertainties normally incident to Forest's exploration for and development and production and sale of oil and gas.

These risks include, but are not limited to, oil and natural gas price volatility, Forest's access to cash flows and other sources of liquidity to fund its capital expenditures, its level of indebtedness, its ability to replace production, the impact of the current financial and economic environment on Forest's business and financial condition, a lack of availability of goods and services, environmental risks, drilling and other operating risks, regulatory changes, the uncertainty inherent in estimating future oil and gas production or reserves, and other risks as described in reports that Forest files with the Securities and Exchange Commission (SEC), including its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K. Also, the financial results of Forest's foreign operations are subject to currency exchange rate risks. Any of these factors could cause Forest's actual results and plans to differ materially from those in the forward-looking statements.

Forest Oil Corporation is engaged in the acquisition, exploration, development, and production of natural gas and liquids in North America and selected international locations. Forest's principal reserves and producing properties are located in the United States in Arkansas, Louisiana, Oklahoma, Texas, Utah, and Wyoming, and in Canada. Forest's common stock trades on the New York Stock Exchange under the symbol FST. For more information about Forest, please visit its website at http://cts.businesswire.com/ct/CT?id=smartlink&url=http%3A%2F%2Fwww.forestoil.com&esheet=6492488&lan=en-US&anchor=www.forestoil.com&index=1&md5=3e360700a561c39c9933bc8ddfaf04fa

November 1, 2010

FOREST OIL CORPORATION

Condensed Consolidated Balance Sheets

(Unaudited)

September 30, December 31,
2010 2009
ASSETS (In thousands)
Current assets:
Cash and cash equivalents $ 251,599 467,221
Accounts receivable 102,709 126,354
Derivative instruments 91,784 35,643
Deferred income taxes - 7,108
Inventory 40,445 52,211
Other current assets 50,858 41,455
Total current assets 537,395 729,992
Net property and equipment 2,615,295 2,259,207
Deferred income taxes 301,940 393,061
Goodwill 256,259 255,908
Derivative instruments 24,251 556
Other assets 40,290 45,966
$ 3,775,430 3,684,690
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 271,644 284,302
Accrued interest 34,705 25,755
Derivative instruments 14,071 41,358
Current portion of long-term debt - 156,678
Asset retirement obligations 1,690 4,853
Deferred income taxes 25,840 -
Other current liabilities 21,498 22,074
Total current liabilities 369,448 535,020
Long-term debt 1,868,453 1,865,836
Asset retirement obligations 85,871 88,450
Derivative instruments 5,034 826
Deferred income taxes 54,329 46,884
Other liabilities 73,166 68,520
Total liabilities 2,456,301 2,605,536
Shareholders' equity:
Common stock 11,336 11,234
Capital surplus 2,675,128 2,652,689
Accumulated deficit (1,441,099 ) (1,652,426 )
Accumulated other comprehensive income 73,764 67,657
Total shareholders' equity 1,319,129 1,079,154
$ 3,775,430 3,684,690


FOREST OIL CORPORATION

Condensed Consolidated Statements of Operations

(Unaudited)

Three Months Ended
September 30,
2010 2009
(In thousands, except per share amounts)
Revenues:
Oil and gas sales $ 210,181 177,184
Interest and other 206 (42 )
Total revenues 210,387 177,142
Costs, expenses, and other:
Lease operating expenses 30,177 34,938
Production and property taxes 13,376 10,873
Transportation and processing costs 6,210 5,352

General and administrative (including stock-based compensation
of $5,105 and $5,037, respectively)

18,007 17,316
Depreciation, depletion, and amortization 64,737 65,275
Interest expense 37,088 42,653
Realized and unrealized gains on derivative instruments, net (59,156 ) (5,665 )
Other, net (6,396 ) (2,060 )
Total costs, expenses, and other 104,043 168,682
Earnings before income taxes 106,344 8,460
Income tax expense (benefit):
Current (16,814 ) -
Deferred 54,247 (163,851 )
Total income tax expense (benefit) 37,433 (163,851 )
Net earnings $ 68,911 172,311
Weighted average number of common shares outstanding:
Basic 110,992 110,054
Diluted 111,778 110,222
Basic earnings per common share $ 0.61 1.53
Diluted earnings per common share $ 0.60 1.53


FOREST OIL CORPORATION

Condensed Consolidated Statements of Cash Flows

(Unaudited)

Three Months Ended
September 30,
2010 2009
(In thousands)
Cash flows from operating activities:
Net earnings $ 68,911 172,311

Adjustments to reconcile net earnings to net cash provided by
operating activities:

Depreciation, depletion, and amortization 64,737 65,275
Accretion of asset retirement obligations 1,693 2,014
Unrealized (gains) losses on derivative instruments, net (29,091 ) 79,238
Unrealized foreign currency exchange gains (9,244 ) (9,723 )
Deferred income tax 54,247 (163,851 )
Stock-based compensation 4,658 4,764
Other, net 1,870 1,494
Changes in operating assets and liabilities:
Accounts receivable 18,445 4,982
Other current assets (12,818 ) 5,147
Accounts payable and accrued liabilities (19,546 ) 7,909
Accrued interest and other current liabilities 8,486 16,091
Net cash provided by operating activities 152,348 185,651
Cash flows from investing activities:
Capital expenditures (168,186 ) (71,160 )
Proceeds from sales of assets 48,979 115,988
Other, net 1,189 -
Net cash (used) provided by investing activities (118,018 ) 44,828
Cash flows from financing activities:
Bank repayments and borrowings, net - (243,179 )
Change in bank overdrafts 16,239 12,683

Proceeds from the exercise of options and from employee stock
purchase plan

466 404
Other, net (496 ) (273 )
Net cash provided (used) by financing activities 16,209 (230,365 )
Effect of exchange rate changes on cash 274 (457 )
Net increase (decrease) in cash and cash equivalents 50,813 (343 )
Cash and cash equivalents at beginning of period 200,786 5,496
Cash and cash equivalents at end of period $ 251,599 5,153

SOURCE: Forest Oil Corporation

Forest Oil Corporation
Patrick J. Redmond, 303-812-1441
VP - Corporate Planning
and Investor Relations